Defense Contractors Must Effectively Monitor Consultants
By Padraic Fennelly and Steve Epstein
As corporate ethics and compliance programs are reviewed and strengthened to meet increasing competition and government requirements, companies may not recognize the risks posed by consultants and other agents.
Yet consultant missteps may be grounds for civil and criminal liability, organizational conflicts of interest and reputational damage. There also is a greater risk of inadvertent violations by consultants since many are single-person or boutique entities, and hence likely to lack the staff, expertise or controls to assure compliance.
Here are some potentially troublesome scenarios.
A company’s consultant also advises the Defense Department pursuant to a contract, and hence has access to department source selection information for a contract the company wants to bid on. What measures must be in place to prevent disclosure of such source selection information to the proposal team, and thereby avoid disqualification?
Here’s another scenario. A consultant also advises one of the military services as part of a strategic policy board which does not review source selection data, but does evaluate future weapons and military needs. Through the consultant’s participation, is the company receiving valuable insights into future service procurements unavailable to other competitors?
Furthermore, is the consultant giving advice to the service that favors weapons systems, sensors, or platforms the company manufactures?
Here is a quick list of other sticky areas. A consultant, not a registered lobbyist, meets a lawmaker regarding a company’s programs. Does this meeting require reporting under the Lobbying Disclosure Act?
A consultant also represents a company’s competitors. Is there a conflict of interest? Can the consultant access both firms’ proprietary information?
A consultant meets a foreign attaché to market a company’s product to a foreign government. Gifts are exchanged. Does this violate the Foreign Corrupt Practices Act? What controls are in place to prevent such a violation?
Here’s another example. In order to carry out his or her contract with a company, the consultant hires a former senior Defense Department official who resigned from his government position three months ago. Will his new duties cause him to violate his post-employment restrictions?
As these scenarios indicate, actions by consultants and other agents may implicate a company, tar its reputation, disqualify it from procurements and subject it to liability. To avoid such a possibility, companies should carefully screen consultants before engaging them, monitor them throughout the engagement, and specify in their contracts what services are included and what actions are prohibited.
Here are some recommendations when working with consultants.
Before retaining a consultant, take steps to verify background and reputation for competent and ethical business performance. If retaining a firm, this scrutiny should be applied to all firm personnel working on the account. Does the consultant represent a competitor, have any employment restrictions, or consult for the government?
These steps may include checking news and public records databases, examining the consultant’s records and financial statements, obtaining industry and government references, and conducting detailed interviews with the consultant and all key employees. Any questions or concerns that come to light during this inquiry must be resolved before the consultant is retained.
Different consultants will require different levels of inquiry, depending on the level of interaction with U.S. or foreign officials, the nature of the contemplated services, and the risk profile of the relevant country or countries. The key is to ensure there is enough information about the consultant to conclude that he or she will represent the company legally and ethically.
A thorough inquiry into a consultant’s background and reputation is just the beginning. Equally important is that a company adequately train the consultant on its standards for legal and ethical business conduct and that it monitor consultant actions taken on the company’s behalf to ensure those standards are being met.
Whether this is done through written activity reports or regular oral briefings will likely vary depending on the circumstances. However achieved, this awareness of the consultant’s activities is critical to both compliance and business performance.
Finally, never assume that a consultant understands the importance the company places on legal and ethical compliance. Always clearly and carefully outline the expectations, and obtain the consultant’s commitment to meet them.
Clearly identify any restrictions such as those on lobbying, obtaining proprietary data, or consulting for the government or competitors. Use of express contractual provisions spelling out the consultant’s responsibilities for legal and ethical compliance is usually a wise course.
For example, consider explicitly barring payments to government officials or mandating specific rules for handling sensitive information. In addition to clauses detailing the consultant’s compliance obligations, additional enforcement terms may be advisable, such as reporting obligations, rights to audit the consultant’s financials, or immediate termination as a consequence of ethical or legal non-compliance.
The bottom line is to recognize the compliance risks that accompany consultants.
Padraic Fennelly is America’s counsel, and Steve Epstein is chief counsel, ethics and compliance, for The Boeing Company. The views expressed are those of the authors.